An allegory is a work that's designed to be a metaphor for something else. Just about every character is meant to be a representation of some group or concept, and their interactions in the work are meant to convey ideas about how these groups/concepts affect each other in real life. The story may say "Alice and Bob had tea together", but in actuality, Alice represents Capitalism, Bob represents Communism, and the "tea" is actually a meeting of the UN. Expect Rule of Symbolism to come into play in these stories.

Perhaps the most famous example is Pilgrim's Progress, a Christian allegory in which the protagonist (named Christian) leaves his old life to go on a journey to the Celestial City, overcoming many obstacles along the way. Not all allegories are this Anvilicious, however. Some are very subtle, to the point where you don't even realize the story is an allegory until someone points it out to you. This is why so many readers get to thinking that Everyone Is Jesus in Purgatory.

Contrast Applicability, which is when a story has meanings beyond with the author intended.
Likewise, Everyone Is Jesus in Purgatory is when the reader sees meanings that aren't really there. See Also Metaphorgotten, when the story (or reader) loses track of what it was talking about.

Examples

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Comic Books

Tales Of The Black Freighter, the Story Within A Story in Watchmen: a tragic little pirate story about a man who gets so paranoid about pirates attacking his home town, that he goes crazy and ends up killing everyone himself, interesting in its own right, and then you realize that It's a metaphor for the villain's plan to "save the world" by murdering thousands, and further hints that his plan is totally in vain.

Scott Pilgrim is one big allegory for growing up, taking responsibility for your mistakes, and learning something from them instead of pretending they never happened.

Film

The 1954 film Gojira was made as an allegory about the horrors of the atomic bomb.

Much of the Star WarsPrequelTrilogy, especially Revenge of the Sith, is an allegory for the Nazi rise to power, Chancellor Palpatine being Hitler and Obi-Wan and Anakin the Goerring brothers, with the latter also representing all Germans. Senator Amidala was representative of democracy, and possibly the extermination of Jews, though the actress' family history is probably a coincidence. There is also the Stormtroopers being, in both cases, first brought in by the Chancellor for the Republic and then used as his personal army. The Separatists may also be representative of the Real Life Spartacists. This is one of many evidence articles on the internet for this.

It's also been suggested that the entire Star Wars series is an allegorical history of the 20th century. The first three films represent the first half - Episode I represents the First World War, Episodes II and III the Second World War, and the Original Trilogy the Cold War. The Jedi and the Empire/Republic represent the Americans and Russians, though which way round they are depends on your point of view.

The Ascent, about two Russian soldiers during World War II who get captured by the Germans, turns into an allegory about Christ and Judas. One of the soldiers dies nobly, sacrificing himself on the gallows as a beatific light shines down on him. The other elects to join Those Wacky Nazis and ends the film a hollow wreck of a man. This is made overt when the collaborator is even called "Judas" by the villagers after he helped lead his old friend to execution.

Literature

Animal Farm - animals oust the human farmer and take over the running of the farm, as an allegory for the rise and corruption of Communism in the USSR.

The Chronicles of Narnia is widely regarded as heavy-handed Christian allegory, but it's actually averted - Aslan literally is Jesus.

The Lion, the Witch, and the Wardrobe re-enacts the crucifixion story with Jadis the White Witch as Satan, Aslan as Jesus (of course), and Edmund as the unsaved sinner in need of redemption. Lucy and Susan also fill in for the Marys who attend Christ's death and burial.

In The Voyage of the Dawn Treader, Eustace's transformation back from a dragon, and subsequent reform of character, is an allegory for the conversion of St. Paul.

The Last Battle is an almost 1:1 retelling of the Second Coming, complete with a false Aslan and his "prophet", a massive war, and everyone going to heaven at the end.

The more proper allegory written by C. S. Lewis is The Pilgrim's Regress, dramatizing his intellectual conversion to Christianity and an Author Tract for his love for Romanticism. An obvious allusion to Bunyan in the title.

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